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As a homeowner or tenant, it’s natural to be worried about what would happen if you fall behind on your mortgage or rent. Unemployment, illness or a sudden drop in income can soon make monthly payments unmanageable, especially if you don’t have savings and/or you’re living with a lot of unsecured personal debt. The type of legal action taken against you depends on whether you rent or own your home. A mortgage provider, normally a bank, can threaten repossession of your home, whereas a landlord seeks possession.

A ‘mortgagee in possession’ occurs when a borrower defaults on their repayments and the lender subsequently takes possession of, and sells, the property.

What to do when a claim arrives

It’s an all-too-familiar story: you’re struggling financially and the last thing you want to do is open an ‘official’ letter that comes through the post. But ignoring a claim from your mortgage provider or landlord means you might not be able to come to an arrangement with them.

If you fail to keep up with mortgage repayments in accordance with your mortgage contract, the mortgagee will most likely issue a Notice advising that you are in default of the loan and give you a specified date by which you need to rectify the situation or come to a new agreement with the lender.

If the loan default continues to exist after the expiration of the specified date, the Notice may include an acceleration clause that subsequently makes the whole loan due and payable immediately.

The mortgage provider can then apply to the Court seeking an order for you to vacate the property. This occurs so that they can take possession of the property and arrange for its sale.

Remember that even if you are taken to court, you won’t automatically be evicted unless the lender or landlord has an outright possession order from the court. Even then, tenants can ask for a delay if, for example, they have a long-term illness or young children. A court can also grant:

  • Suspended possession order: Depending on the terms, you may be able to keep your home if you make agreed payments to your lender or landlord

  • Adjournment: A judge can adjourn the hearing if he or she need more evidence

  • Money judgment: You will have to pay whatever costs a judge decides, including mortgage/rent arrears, court fees and the lender’s legal costs.

  • Dismissal: If a landlord has no legal reason to evict you, the court can dismiss (or strike out) the case against you.

I’m worried about the court hearing – do I have to attend?

As much as you might want to avoid it, we always advise people to attend their court hearing. Remember this is not a criminal or public trial – it is a chance to submit your payment proposal privately to a district judge and the lender or landlord’s solicitor. If the judge thinks your offer is reasonable, he or she might grant a suspended possession order, which means you can stay in your home as long as you are able to make the repayments. However, you could still lose your property if you breach the terms of the suspended possession order and the lender can apply for an ‘eviction warrant’ without further court action. Once this is in place, court bailiffs will set a date to visit your house and ensure it has been vacated.

What if I still can’t pay my rent or mortgage?

In more serious situations, the court may decide you cannot realistically afford to clear your arrears so will make an outright possession order, usually effective in 28 days.

The mortgagee in possession will arrange for the property to be sold by either auction or private treaty. The money from the sale will be applied against any legal costs it incurred in the court process, expenses they have in maintaining the property and the balance applied against the outstanding loan amount. If there are any funds left over then you will have to receive these by law.

To avoid this situation, you should contact your lender as soon as you realise you are in financial difficulty. They may be sympathetic to your situation and look to give you a ‘payment holiday’ or some other variation in terms of the original mortgage agreement.

This is often more preferable to lenders as they will incur costs seeking a default and court action.

If you are still struggling with your lender and they are not receptive to your situation you may seek alternative finance elsewhere. Our partners at Debt Savvy can help you look for finance and discuss alternative options with you if you simply can’t get anywhere with your mortgage provider.

Should your circumstances change, and you can start paying back what you owe, you may be able to stop the repossession. You will need to be sure you have the funds and convince the judge of your ability to pay. People sometimes fall behind on their mortgage or rent because they have high levels of credit card debts and outstanding loans. Debt Savvy offers free debt advice and can help you find the best repayment plan for your situation. For more details, click here, or call one of our advisers in confidence on 1300 912 197.